Boeing faces a difficult balance between safety and financial performance

Less than four weeks after a hole was blown open in a Boeing 737 Max 9 aircraft during a flight, business leaders are faced with a thorny question: should they emphasize safety or financial performance?

The issue looms as Boeing prepares to report its fourth-quarter earnings on Wednesday amid the biggest safety crisis in years. With the Jan. 5 incident on a Max 9 flight still under investigation, executives are grappling with how much to discuss quality control while reassuring shareholders that the company is protecting their investments, according to two people with knowledge of the matter .

The National Transportation Safety Board is expected to issue a preliminary report this week on the incident, which occurred on an Alaska Airlines flight. The report could shed more light on how a panel canceled the Max 9 and will almost certainly increase scrutiny of Boeing from lawmakers, airlines and safety groups.

Boeing CEO Dave Calhoun is expected to speak about safety during the company's call with investors on Wednesday morning after the company's earnings report is released, one of the people said. But it's not clear what balance he and other executives will strike in their comments as they try to limit the fallout from the Max 9 incident.

The topic has taken on new meaning after news reports, including one in The New York Times, that Boeing workers opened and then reinstalled the panel, also known as a door plug. The plug tore loose from the Alaskan plane shortly after takeoff. This revelation suggests that the incident – which scared passengers and forced the pilots to make an emergency landing – may have been caused by errors at a Boeing factory in Renton, Wash.

Some aviation experts and executives have long said that Boeing's safety problems and its financial performance are intertwined. The company, these people say, has for years placed too much emphasis on growing profits and enriching shareholders with dividends and share buybacks, and not enough on investing in technology and safety.

Boeing's emphasis on rewarding investors has led to quality and safety problems, critics say, including two fatal crashes involving the 737 Max 8 plane in 2018 and 2019 that killed nearly 350 people. These accidents and the fallout from the coronavirus pandemic have in turn hurt Boeing financially and pushed its main rival, Airbus, ahead of its top rival in sales.

“Lately, Boeing has been appointing CEOs who seem more focused on stock prices and dividends than on flight safety and production quality,” said Dennis Tajer, a captain at American Airlines and spokesman for the union representing the airline's pilots.

Boeing declined to comment.

How Boeing navigates the latest crisis in the coming weeks and months could have major implications for the company's credibility with regulators, airlines and travelers, as well as its long-term financial performance.

Investors are concerned that this latest crisis could derail Calhoun's plans to put Boeing on firmer financial footing. The company's share price has fallen about 19 percent since January 5.

Airline executives, federal regulators and safety groups have expressed growing frustration with Boeing and its repeated safety problems.

Mr. Calhoun, who taken over as general manager in January 2020, after years of serving on the company's board of directors, then promised that the company would “be better” and “hold ourselves accountable to the highest standards of safety and quality.”

American Airlines CEO Robert Isom Wall Street analysts said this last week that “Boeing needs to get its act together.” He added: “The problems they have faced recently, which also go back a number of years, are unacceptable.”

Further reinforcing the sense of urgency for Boeing, the Federal Aviation Administration said last week it was limiting Boeing's ability to increase production of all 737 Max aircraft, including approving any additional assembly lines, until the company proves that it has resolved its quality control issues. .

The agency has allowed Max 9 planes it grounded after the Alaska incident to fly again after inspections. United Airlines and Alaska, the only two U.S. airlines flying the Max 9, began using the planes again in recent days.

Federal investigators are focused in part on whether the two sets of bolts that held the door in place connected to the plane's body. were installed. No bolts were found.

The circumstances of the Alaska Airlines incident are different from those of the Max 8 crashes: no serious injuries were reported and the problem appears to be production-related rather than design-related. But Boeing's approach to its April 2019 quarterly results, just weeks after the second Max crash, could serve as an example for Boeing executives on Wednesday.

During that earnings call, Dennis Muilenburg, then the company's CEO, spoke for several minutes about safety and quality, instead of Boeing's financial performance.

“Recent events are a profound reminder of the importance of our enduring values ​​at Boeing: safety, quality and integrity, especially in the difficult times we now face,” Mr. Muilenburg said at the start of the call. “Our work requires the utmost excellence.”

Analysts expect Boeing will try to reassure stakeholders about its commitment to safety.

“In our view, investors are a secondary audience for Wednesday's call, as regulators, members of Congress and their staffs, and the press and public are all important constituencies for Boeing to target, with an emphasis likely to be processes for ensuring safety. and quality,” JP Morgan analysts wrote in a note on Monday.

Mr. Calhoun has suggested that he is not currently focusing on Boeing's financial performance.

“This is not the time to talk about what I can or cannot achieve in terms of deliveries,” he said in an interview interview on CNBC on January 10, in response to a question about ramping up production of the Max planes. “My work right now is solely focused on: let's understand and solve the safety problem.”

Peter Eavis reporting contributed.